As VW pushed to be No. 1, ambitions fueled a scandal

Automaker focused on diesel cars, cheated on their pollution tests

Danny Hakim, Aaron M. Kessler and Jack Ewing, New York Times

September 27, 2015Updated: September 27, 2015 10:54pm

Photo: David McNew /New York Times

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A state technician prepares to test the diesel emissions of a 2013 Volkswagen Passat in El Monte, Calif. The emission tests cheating scandal has shaken not just Volkswagen, but the worldwide auto industry, which is bracing for questions about cheating to sidestep regulations. less

A state technician prepares to test the diesel emissions of a 2013 Volkswagen Passat in El Monte, Calif. The emission tests cheating scandal has shaken not just Volkswagen, but the worldwide auto industry, ... more

Photo: David McNew /New York Times

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Michael Horn, chief executive of Volkswagen Group of America, unveils the 2016 Passat model earlier this month in New York. Germany's transportation minister says that software installed in millions of Volkswagen diesel cars might have been used to fool official emissions tests in Europe, not just the U.S. less

Michael Horn, chief executive of Volkswagen Group of America, unveils the 2016 Passat model earlier this month in New York. Germany's transportation minister says that software installed in millions of ... more

Photo: Bryan Thomas /New York Times

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Martin Winterkorn has resigned as chief executive of Volkswagen, taking responsibility for an emissions cheating scandal that has gravely damaged the carmaker's reputation and may spread to the German economy.

Martin Winterkorn has resigned as chief executive of Volkswagen, taking responsibility for an emissions cheating scandal that has gravely damaged the carmaker's reputation and may spread to the German economy.

Photo: New York Times File Photo

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In 2008, the Green Car of the Year Award went to the VW Jetta TDI Clean Diesel car during the Los Angeles Auto Show. In 2015, Volkswagen has admitted it installed software in 11 million diesel cars that cheated on emissions tests. less

In 2008, the Green Car of the Year Award went to the VW Jetta TDI Clean Diesel car during the Los Angeles Auto Show. In 2015, Volkswagen has admitted it installed software in 11 million diesel cars that cheated ... more

Photo: Getty Images File Photo

As VW pushed to be No. 1, ambitions fueled a scandal

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Martin Winterkorn, Volkswagen’s CEO, took the stage four years ago at the automaker’s new plant in Chattanooga, Tennessee, and outlined a bold strategy. The company, he said, was in the midst of a plan to more than triple its sales in the United States in just a decade — setting it on a course to sweep by Toyota to become the world’s largest automaker.

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“By 2018, we want to take our group to the very top of the global car industry,” he told dignitaries gathered for the opening of VW’s first U.S. factory in decades.

One way Volkswagen aimed to achieve its lofty goal was by betting on diesel-powered cars instead of hybrid-electric vehicles, promising high mileage and low emissions without sacrificing performance. Ray LaHood, the transportation secretary, endorsed the company’s commitment to diesel that day.

Volkswagen’s ambition is suddenly central to what is shaping up as one of the great corporate scandals of the age. On Tuesday, Volkswagen said it had installed software in 11 million diesel cars that cheated on emissions tests, allowing the vehicles to spew far more deadly pollutants than regulations allowed. About 500,000 of the cars were sold in the United States.

Disabling the emissions controls brought major advantages, including much better mileage — a big selling point in Volkswagen’s push to dominate in America.

The admissions forced Winterkorn to resign and have led to a sweeping management overhaul. Several executives were dismissed, including two top managers in research and development. Volkswagen shares declined 34 percent last week, and the company faces penalties of as much as $18 billion from the Environmental Protection Agency.

Volkswagen’s crisis has its roots in decisions made almost a decade ago. In 2007, it abandoned a pollution-control technology developed by Mercedes-Benz and Bosch and instead used internal technology.

At the same time, the determination by Winterkorn, the company’s hard-charging CEO, to surpass Toyota put enormous strain on his managers to deliver growth in America.

To capture market share, Volkswagen, which also makes such brands as Audi and Porsche, would need to build the larger cars favored by Americans. But it also would need to comply with the Obama administration’s toughening standards on mileage. All automakers developed strategies to meet the new mileage rules, and diesel was a big part of VW’s plan. But diesel engines, while offering better mileage, also emit more smog-forming pollutants than conventional engines, so Volkswagen’s strategy ran head-on into U.S. air pollution standards.

Cheating on emissions tests solved several issues at once. Not only were drivers rewarded with better mileage and performance, but the automaker also avoided more expensive and cumbersome pollution-control systems.

It is not Volkswagen’s first run-in with regulators over emissions. When the United States began regulating tailpipe pollutants in the 1970s, Volkswagen was one of the first companies caught cheating. It was fined $120,000 in 1973 for installing what became known as a “defeat device,” technology to shut down a vehicle’s pollution control systems. This time, it equipped its vehicles with software that was programmed to fake test results, an action the EPA rebuked in 1998, when it reached a $1 billion settlement with truck-engine manufacturers for doing the same thing.

Over the past year, when confronted with evidence that its system was not performing as promised, Volkswagen aggressively pushed back, saying regulators were not doing the testing properly.

In 2007, Winterkorn attracted little attention when he made his first trip to Detroit as Volkswagen’s CEO, during the industry’s annual auto show there. The company was then a bit player in the United States. There was more excitement about Changfeng Motor, the first Chinese automaker to participate in the show.

One Volkswagen executive did make headlines — but he was not there. Wolfgang Bernhard, head of the Volkswagen brand, was a well-known figure in Detroit, having spent several years as the second-highest-ranking executive at Chrysler, then part of Daimler. He was remembered for dressing in black leather during one auto show while he rode a four-wheel, 500-horsepower motorcycle called the Dodge Tomahawk.

Bernhard was widely expected to resign in a corporate shake-up, and he did a few days later. His departure set off ripples not just in Volkswagen’s boardroom, but also under the hoods of its future diesel vehicles. Bernhard, a longtime Daimler executive, previously had announced a deal to use a technology called BlueTec, which was developed by Mercedes, a division of Daimler, and Bosch, a German supplier.

BlueTec mixes a chemical known as urea with engine exhaust to neutralize nitrogen oxide, one of the most harmful diesel pollutants. While it is an effective system, it can be costly.

A few months after Bernhard’s departure, the plan was scrapped. The trade publication Automotive News quoted an Audi executive saying Volkswagen’s own technology was strong enough. “We don’t need BlueTec,” the executive said.

Bernhard, who is now head of Daimler’s truck division, declined through a spokesman to comment.

The same year Winterkorn made his speech in Chattanooga, officials from California’s environmental regulator began hearing about a problem from their European Union counterparts: They were finding discrepancies between the emissions of diesels in the lab and on the road, across the industry.

It was not completely unexpected that on-the-road performance might not match lab tests, given the varying road conditions vehicles face. But it led to the idea that new testing methods outside laboratories might be needed.

In 2013, a nonprofit group, the International Council on Clean Transportation, proposed testing on-road diesel emissions from cars in the U.S. — something never done before.

California regulators decided to team up with the group. They had an attractive chip to offer: the state’s laboratory, where vehicles were tested for California emissions compliance.

It was only by chance that the group’s testing of three vehicles began with two Volkswagens. The researchers already had a BMW X5 and a Volkswagen Jetta — and then a Passat owner happened to see an ad seeking cars for the project and offered up his.

Researchers hit the road, traveling five routes with varying terrain and traffic. Almost immediately, the two Volkswagens set themselves apart from the BMW.

“If you’re idling in traffic for three hours in L.A. traffic, we know a car is not in its sweet spot for good emissions results,” said Arvind Thiruvengadam, a research professor at West Virginia University, which was hired to conduct the tests. “But when you’re going at highway speed at 70 miles an hour, everything should really work properly. The emissions should come down. But the Volkswagens’ didn’t come down.”

It was difficult to know what was going on. When the two Volkswagens were placed on a “car treadmill” known as a dynamometer, they performed flawlessly.

By 2014, the California regulators determined what to do next. First, they alerted their federal counterparts at the EPA. Then, they opened an investigation. “We brought in Volkswagen and showed them our findings,” said Stanley Young, a spokesman for the California Air Resources Board. “We asked them, ‘How do you explain this?’”

Volkswagen fired back. “They tried to poke holes in our study and its methods, saying we didn’t know what we were doing,” Thiruvengadam said. “They were very aggressive.”

The company offered many explanations: Weather conditions. Driving styles. Technicalities it claimed the researchers and regulators did not understand.

“Meeting after meeting, they would try to explain it away, and we’d go back to the lab and try again. But we’d get the same results,” Young said.

The back-and-forth lasted for months. Finally, in April, Volkswagen made an offer: It would conduct a voluntary recall to fix the problem in certain model year 2010-to-2014 diesel vehicles.

Regulators got the software update for their test vehicles and returned to the lab. The results were not good. “It didn’t solve the problem,” Young said.

Confronted again, Volkswagen continued to maintain that there was a problem with the testers, not the vehicles.

California regulators changed tack, examining the company’s software. One day last summer, they made a startling discovery: A subroutine, or parallel set of instructions, was secretly being sent by the computer to what seemed to be the emissions controls.

Regulators were floored. They set out to cheat the cheat, tweaking lab test parameters to trick the car into thinking it was on the road. The Volkswagens began spewing nitrogen oxide far above the legal limit.

Government officials then increased the pressure on the company, threatening to withhold approval for its 2016 Volkswagen and Audi diesel models. According to the EPA, that is what forced Volkswagen’s hand. On Sept. 3, a group of senior engineers admitted what the regulators had suspected: The company had installed defeat devices on nearly 500,000 diesel vehicles sold in the United States. In a presentation, they admitted that the software subroutine had been added to vehicles going back to the 2009 model year.

“It was the repeated answers that did not add up that really led to the discovery of the problem in the first place,” Young said.